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Cablegate: Yogyakarta: Challenges, Opportunities for Decentralization

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RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2874/01 2840947
ZNR UUUUU ZZH
R 110947Z OCT 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6650
INFO RUEAWJB/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 0950
RUEHBJ/AMEMBASSY BEIJING 4404
RUEHBY/AMEMBASSY CANBERRA 1364
RUEHUL/AMEMBASSY SEOUL 4243
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 002874

SIPDIS

STATE FOR U/S JEFFERY
STATE FOR EAP/MTS
MCC FOR AMBASSADOR DANILOVICH AND MORFORD
DEPT PASS USTR FOR AMBASSADOR SCHWAB
TREASURY FOR IA - BAUKOL
USAID FOR ANE/AA WARD

SENSITIVE
SIPDIS

AIDAC

E.O. 12958: N/A
TAGS: ECON PGOV KJUS KPAO ID
SUBJECT: YOGYAKARTA: CHALLENGES, OPPORTUNITIES FOR DECENTRALIZATION


JAKARTA 00002874 001.2 OF 002


1. (SBU) Summary and Introduction: Yogyakarta's decentralization
framework is robust, yet its implementation and results incomplete.
Following major earthquake damage and economic decline in 2006, the
Special Province of Yogyakarta is working to attract investment and
improve the investment climate through one-stop business licensing
centers, the Yogyakarta Business Center, and adequate
infrastructure. The Yogyakarta Governor has established the Change
Management and Innovation Center to improve public service delivery.
These innovations have created notable models for decentralization
and government support for economic growth; however, tangible
benefits are slow to appear.

2. (U) We traveled to Yogyakarta on September 27-28 to meet with
local government officials, civil society leaders, and university
administrators and students. Local government meetings included the
regional planning board (BAPEDA), the District Attorney's Office
Special Crimes Unit, and the Yogyakarta Mayor's Office for
Infrastructure. The Partnership for Governance Reform regional
office set up a roundtable with the private and public ombudsmen as
well as the head of the government's Change Management and
Innovation Center. We engaged in public outreach events at the
University of Gadjah Mada, Muhammadiyah University, Sanata Dharma
University, Rotary Club, and the Center for Anti-Corruption Studies
(PUKAT). (See septel for additional reporting on PUKAT,
anti-corruption reform, and improving accountability in Yogyakarta.)
End Summary and Introduction.

Recovering from the Earthquake
------------------------------

3. (U) Divided into four districts and one city, Yogyakarta relies
on small and medium-sized enterprises (SMEs) for 80-90% of its
employment and an equal if not larger portion of its GDP, according
to regional planning board officials. Furniture, silver, leather,
and other crafts account for much of the SME economy, while dairy,
hand tools, textiles, and light bulbs (specifically a GE factory)
account for the larger-sized enterprises in Yogyakarta.

4. (U) With a mix of regional pride and actual results, the people
of Yogyakarta have recovered from the devastating May 2006
earthquake, which killed 5,700 people, injured over 37,000, and left
over 1.5 million homeless. The disaster led to 3.7% economic
decline and double-digit inflation in 2006. Local leaders conveyed
a perception that earthquake relief had concluded as financial
assistance is largely disbursed and many people were returning to
their normal routine. We toured Yogyakarta villages with Rotary
leaders to view earthquake damage and subsequent reconstruction
efforts. Many reconstruction projects appeared to be completed.
However, we saw severe earthquake damage in some areas as well as
the continued use of emergency tents.

Right Reforms, Slow Output
--------------------------

5. (SBU) Yogyakarta provides a model for the speed and creativity of
its governmental responses to providing services under
decentralization; however, positive results for business development
are still limited. Regional planning board officials highlighted
the one-stop centers for business licenses and paperwork, the
Yogyakarta Business Center, and the six regional centers for SMEs as
examples of Yogyakarta's efforts to attract investment and improve
the business climate. Civil society leaders pointed to the
province's push to provide digital government services. In 2007,
the Governor established the 60-person Change Management and
Innovation Center to evaluate government performance, specifically
public services. Despite these impressive innovations, ombudsmen
officials said that it takes 240 days to start a business in
Yogyakarta, significantly longer than the national average of 80-90
days.

6. (SBU) Infrastructure for business development is adequate. An
infrastructure official in the regional planning office said that
only ten percent of the roads were in poor condition. Public

JAKARTA 00002874 002.2 OF 002


transportation is old, but not an impediment to business
development. Water supply is a contentious issue as rice farmers
and fisheries compete for limited water supply. Only 40% of
Yogyakarta residents receive water supplies from the state water
company. Eighty percent of Yogyakarta residents receive electricity
from state-owned electricity company PLN, second best for Central
Java. While it could be improved, infrastructure is not the
principal stumbling block for economic growth in Yogyakarta.

Decentralization: Many Regulations, More Challenges
--------------------------------------------- ------

7. (SBU) Although a special province in Indonesia, Yogyakarta has
confronted new challenges since the start of Indonesia's ambitious
decentralization. Civil society leaders said that the
province-district relationship remains unclear. National regulation
38/2007 on sharing and assigning functions, roles and authority
across levels of government and national regulation 41/2007 on the
structure of regional government have yet to be fully implemented.
Parliament is considering further revisions to Indonesia's
decentralization Law 32/2004, which could further complicate
matters. Overlapping jurisdictions and multiple laws continue to
confuse and delay local government operation. Local business
development is also hampered as the investment rules and licenses
are unclear. As shown by the 2006 earthquake, disaster management
is another issue not addressed adequately by current
decentralization law and regulations. In addition, a 1960 Land Law
needs to be updated.

Public Outreach Opportunities Abound in Yogya
---------------------------------------------

8. (U) Yogya is Indonesia's university center, with over 120
universities. We met with the Dean and students of the Economics
Faculty at Gadjah Mada University, academic home of Coordinating
Minister for Economic Affairs Boediono and many top economists in
Indonesia. In a public forum, we spoke with 120 economics students
about the importance of the US-Indonesian relationship, particularly
economic reform. We fielded questions ranging from US involvement
in the 1965 coup to the prospects of implementing the UN/World
Bank-sponsored Stolen Asset Recovery (StAR) initiative in Indonesia.
We also visited Muhammadiyah University-Yogyakarta and met with the
Rector before participating in a panel discussion on corporate
governance. We spoke with 120 students, highlighting key issues for
US-Indonesian cooperation, particularly anti-corruption reform.
Muhammadiyah professor Masyhuid Muqorobin stated that corruption
contradicts Islamic values and argued that the concept of
trusteeship (amanah) in Islam should guide Indonesian leaders in
combating corruption.

9. (U) We later met with Rotary Club leaders, including the Rotary
Indonesia President and President Elect. With over 100 clubs in
Indonesia, Rotary has assisted with Yogyakarta earthquake relief and
implements other community service projects throughout Indonesia.
Returning to Gadjah Mada, we met with the Center for Anti-Corruption
Studies (PUKAT), an NGO established in December 2006 to work on
various public policy efforts regarding anti-corruption in
Indonesia. PUKAT is designed to be a model organization for other
universities interested in working on anti-corruption reform. See
septel for PUKAT meeting points.

10. (U) We met with the Rector, Vice Rector, an English professor,
and three students at Sanata Dharma University, a small private
university in Yogyakarta. The discussion centered on exchange
projects, specifically the university's goal to establish an annual
exchange program with an American university. We answered questions
ranging from student visa applications to the social life of young
Americans.

HEFFERN

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